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Sunday, April 15, 2007

Start Late, Finish Rich by David Bach

I'm not quite sure whether to recommend this book or not. It starts out with a similar tack to Dave Ramsey's approach - take a long hard look at everything you spend your money on to discover where your "latte money" is going. By "latte money" the author means little, niggling daily wastes of money that you can easily eliminate and turn into savings. Instead of buying a daily coffee at an expensive coffee house, for example, assume you can save $5 a day and invest $150 per month. You'll pile up money faster if you turn senseless spending into investments. Makes sense.

Then, the author sort of loses his mind and tries to take you with him, in my personal opinion. Without naming names, he gives Ramsey a good-sized hand slap by claiming others will try to mislead you into getting out of debt before saving. Well, of course they will; debt is the biggest money-gobbler of them all. Bach, however, says that you should start saving at the same time you're paying down your debt because you'll have more set aside in the long run, banking on the time value of money. He then does some bizarre math that totally overlooks the fact that it would be almost impossible to save beyond what you'll lose to banks or credit card companies during the time you put off paying off loans or credit card balances. I strongly disagree with this particular concept. While I'm not in debt, apart from a mortgage, it makes no sense to me from a purely mathematical viewpoint.

The investment portion of Bach's book has some excellent advice and here, I must say, I think he excels over other get-rich-quick authors. He gives you specific websites to look at and advises that your life should be exciting, your investments boring. Bach claims the best way to split your investments is into thirds and he gives plenty of information on where to go in order to get started, how to choose mutual funds and IRAs, how much you can put away tax-free or tax-deferred and which alternatives are best for your income level. If there's a portion of this book that I think makes it worth the money, it's the section on how to invest. The only part of this section that I was uncomfortable with was his advice to put 1/3 of your investments in real estate funds, which he claims are safer and more profitable than mutuals. The URLs he listed all appear to be aligned to the same company. That alone is suspect, in my mind, but it's worth looking into.

Onward to how to start your own business so that you can make more money, thus allowing you to sock away more. He describes direct selling as an excellent opportunity, claims that the statistics on new businesses that fail are wrong, and suggests a variety of options including selling goods on eBay. Okay, I'm fine with that. What I'm not okay with is the suggestion that most people make a large amount of money in home-based direct sales. This has not been my personal experience, nor that of anyone I know who has attempted a home-based, direct sales business (the kind where the company sells forms to you and you sell via parties, cold calling, etc.). I may not know the right people, but it's true that I've seen a lot of people invest several thousand dollars and fail to make a profit at all. He does list five major downsides to direct selling and this is where I thought one of the quotes was most humorous:

You can have the good life, if you're willing to work for it. But, anyone who uses this approach to sell you on the business is, in my opinion, trying to "razzle-dazzle" you, and they and their business should be avoided.

I marked that quote because my personal opinion is that his entire approach is just what he describes in that comment. Loads of exclamation points!!! Hinky math!! You, too can get rich and build an ego as big as his!!! Oh, please. It takes a lot of guts, some connections, a huge amount of savvy and a willingness to profit off the misery of others in order to make money in the ways he suggests, particularly in the following portion of the book.

Next is a large section on how to make piles of money in real estate. The bizarre aspect to this section is that what he suggests you do is not only horribly risky but also, in many ways, immoral. The math gets even more bizarre, at this point, as the author has apparently only lived in places where mortgages and rents are huge, the opportunities immense, the rising cost-of-living so rapid that it's actually possible to buy a home and two years later make a large profit. He recommends leveraging (buying properties with other people's money), tying up real estate long enough to find an additional buyer and then "flipping" it to make a profit, taking out a second mortgage on your home to buy additional property. The headaches of becoming a landlord are only marginally addressed. Not to mention that leveraging is exactly what caused Dave Ramsey to go bankrupt and come up with his own financial recovery system. Yes, in the long run real estate is only going to continue to rise. But, if the real estate market collapses or a deal goes bad, you stand to lose absolutely everything you own.

Here's an example of Bach's insane math:

In 2003, people were buying homes in Las Vegas for $250,000 with down payments of just 5% or $12,500. Happily for them, over the next year, the value of the homes shot up by more than 30%. so now they were worth $325,000. the new owners then sold the homes at a profit of $87,500 each. Given that their initial investment was only $12,500, this amounted to a return of 700%!

But, wait! Hasn't he forgotten that he's referring to someone else's money? What about interest? Regardless of interest rate, there is going to be a payoff amount for borrowed money that includes some sort of profit for the lender. Hinky.

The fact of the matter is that everything Bach suggests, which is reasonable and useful, can be discovered through a little personal research. How do you invest safely in mutual funds? Look up Morningstar's ratings online or in newspapers and ask for a prospectus from any company you're considering placing your money with. What about the confusing job of figuring out the best avenues to avoid being heavily taxed on your investments and retirement funds? Again, information is readily available. For those who are nervous about looking such things up without a financial expert to help translate, there are always investment companies. They'll charge you a percentage, but it might be worth the cost in order to get a little help. The book may or may not help you feel more confident; I think that depends heavily on the individual. As a reference guide for websites on investing, the book is excellent - bearing in mind that things do change rapidly on the internet and a good portion of what he recommends can be discovered on your own, particularly information from the government.

Oh, and this is only a book that is of any value if you're a resident of the United States.

I have to admit that I finally decided I needed to just get the reading of this book over and done with. The author's ego trip was immensely tiresome, his stories of how he advised friends into wealth annoying and his last-ditch attempt to sound moral by throwing in a tiny section on "giving back" appalling.

In general, there is some good, solid information in this book and a great deal of what I consider nonsense. I don't doubt there are people who've become wealthy using these principles; in fact, I know some who have made loads of money by becoming landlords or buying properties and "selling up". But, it's not a "no-fail plan" as the subtitle suggests. Of that, I'm certain. Upon consideration, I can only recommend certain portions of the book and for that reason I'm going to leave it off my recommended list entirely. In fact, I found it so frustrating and the math so misleading that I'm not even going to rate the book. Instead, I'd advise anyone who is interested to flip through, decide whether the information on investments is worth the price of the book, and make your own decision. I question the author's integrity, but I'm also far from wealthy and hesitant about real estate. Of the investments my savvy and careful accountant father had upon his death, exactly 25% returned pennies on the dollar. Guess what that 25% was invested in? Yep, real estate that went bust. Okay, I'm a little biased.

Not recommended, although I'd advise flipping through the book for starting points to do your own investment research, if you feel like you don't know where to begin.

And, for a little levity because this was a highly negative post, I give you Red Beans and Rice: It's what's for dinner . . . and breakfast, and lunch.This is what happens when you change your email address and forget to open a statement from the local swim club during the month they're having a fundraiser. Oopsy, we were supposed to sell 10 red beans and rice dinners but I didn't open the envelope with the tickets billed to our account until it was too late. So, shoot, might as well just throw 10 dinners' worth in a plastic container and eat it ourselves, right? I'd never heard of red beans and rice before moving to Mississippi and I have to admit I was skeptical when I first tried it, many moons ago, but it's delicious so I didn't mind being cornered into buying 10 dinners. I may get a little tired of eating the same meal repeatedly, soon, though.

14 comments:

Never heard of red beans and rice?! I forget that everyone is not as fortunate as those of us in Louisiana when it comes to food :p

I've found that those get rich quick books don't work for me. I have to find something that fits into my own lifestyle. For example, giving up the $5 coffee a day for me is not an option ;) It just doesn't taste as good when it's made at home, and I worked in a coffee shop for 5 years.

The best advice I have gotten is from a friend who makes excellent investments. After I graduate and get my licensure I plan on opening up a private practice counseling business with his wife who's also in my graduate program. So I'll have him to help me start a successful business.

Money's just such a pain sometimes. If only a money tree actually existed :)

Thanks for the laugh. Yeah, I'd never heard of red beans and rice, never had gumbo or jambalaya (!!) and crayfish were those things the school boys got down in the creek and caught to scare girls (nobody ate them and we called them "crawdads"). Hard to believe, eh? :)

This is just my third get-rich book and, yeah, you have to be willing to make some major changes to follow what they suggest. I was miffed when this particular author mentioned giving up bottled water, for example. If he'd come down here and just taste our water (uck!) he might not think of it as expendable. I'd just end up drinking Coke if I gave up my bottled water. Not to mention the fact that stocking up on water is something you just have to do in case of power outages, around here, so I keep a rotating supply.

My dad was my financial advisor and he did quite well on his investments (apart from that bit he put into real estate). Unfortunately, he died 17 years ago and that left me without a mentor. We took way too long getting back to investing after his death and a big loss on our house in Oklahoma - another knock on investing in real estate.

Hmmm, I just can't do self help books. Other than the Bible. They are so full of themselves, and unlike you, I can't be bothered to sit down to figure out fact from fallacy. Like, the math 700% thing? Wouldn't get it...But, I'm glad you're smart enough to tell the rest of us about it!

A lot of self-help books are incredibly boring and/or written by egotists - so true. But, do you know they're actually the best-selling books? Or, at least they were when I was involved in writing groups. Think of "Purpose-Driven Life," "Men are From Mars, Women are From Venus," and "Don't Sweat the Small Stuff." All were top-sellers that made their authors a boatload of money.

You're right; the Bible has the best advice. Including, don't bury your money and expect it to grow. LOL The 700% thing really ticked me off; it's one thing to try to sell an idea, but another entirely to mislead people with bad math, you know?

Oooh, I love red beans and rice, as long as it isn't too spicy. Looks like you have some polish sausage in there, too. Yum. If you like gumbo, check out my recipe on my food blog. It should be there under gulf shrimp stew, I think.

Good review in spite of your opinion of the book/author. Neither of us are terribly smart when it comes to investing, so we do depend quite heavily on our investment broker. We're not doing too badly, either, especially given the terrible drop in the market a few years ago.

I'm not one for those at-home businesses. My daughter tried the Arbonne sales thing for a little while, but couldn't convince me to become a sale consultant. I hate to push that sort of thing on friends. I'd rather be poor and work at a bookstore than try to make it big in sales.

Thanks (for the comment on the review). Investment-wise, we really fell behind. Moving to Mississippi was a total disaster for us because we couldn't sell our house and then I lost my dad, who is probably the only reason we didn't go bankrupt (I had saved almost every penny I earned, when we married, and that was our safety net). It took us five years to afford a house and when we finally did, we weren't careful about the school district and ended up paying for private school. Yeesh. But, things are improving. :)

I had the same problem with home sales. Even though I sold a product I believed in (actually 2 - Usborne and DK books), I didn't think it was something that was for just anyone and I was great at sales but you just don't make enough. My downline of 6 was a flop! LOL

Bach's very gimmicky, so that's definitely a good read on your part. Stick with Dave. Focused intensity, long-term thinking and staying debt free are the keys to building wealth over the long haul. It's a crock pot man, not a microwave. Good post.

Bookfool and Les, I'm with you on red beans and rice. YUM, yum, double yum. I'll have to come copy your recipe, Les, because I just open the package from the store. But, I don't do that ALL the time in my kitchen. Lots of things are made from scratch...:)

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